Mortgage Servicing Portfolios At The Largest U.S. Banks Continue To Shrink

The total mortgage servicing portfolio at the the five largest U.S. banks continues to shrink at a rapid pace, as these banks now service under $3.4 trillion in outstanding U.S. mortgages – down from a figure of almost $3.7 trillion at the end of Q1 2017. Notably, the combined mortgage servicing portfolio for these five banks at the end of 2012 was substantially higher at $5 trillion.

The table above captures the break-up of total mortgages serviced by each of these banks in terms of ownership. In addition to servicing mortgages that they originate and continue to hold on their balance sheet, each of these banks also service a sizable portfolio of third-party mortgages. As detailed here, third-party mortgages make up almost $2.4 trillion of the $3.36 trillion in total mortgages serviced by these five banks, or about 71% of the total portfolio.

Notably, data compiled by the New York Fed shows that there were around $9.1 trillion in outstanding mortgages in the U.S. at the end of Q1 2017. This implies that these banks now service 37% of all outstanding mortgages in the U.S. – down from 42% just a year ago. This is because stricter regulatory requirements since the economic downturn have made the mortgage servicing business less profitable – resulting in banks running off their third-party mortgage servicing portfolios.

The regional banking giant U.S. Bancorp stands out as the only major bank to witness an increase in its mortgage servicing portfolio. While Citigroup has a much larger asset base compared to U.S. Bancorp, the geographically diversified banking giant has been focused on shrinking its mortgage exposure since the economic downturn. The sharp reduction in the mortgage servicing portfolio over Q1 2017 was due to the bank’s decision to sell a chunk of the portfolio, with agreements in place to completely exit the U.S. mortgage servicing industry by the end of 2018.

The chart below captures U.S. Bancorp’s third-party mortgage servicing portfolio over the years, and also includes our forecast for it. You can see how changes to this portfolio affects our price estimate for the bank by modifying this chart.

See full Trefis analysis for U.S. Bancorp | Wells Fargo | JPMorgan | Bank of America | Citigroup

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